Simple Moving Average (SMA)
Original schematic showing the guide's principal visual relationships.
Formula and components
An equal-weight average of closing prices over a selected number of periods.
SMA(n) = sum of the last n closing prices ÷ n.
How it works
The indicator transforms price, range, or volume observations over a selected lookback. Shorter settings react faster but create more noise; longer settings respond more slowly and emphasize the underlying regime. Always compare the reading with price structure and timeframe.
How to read it
Price above a rising SMA supports an upward-trend interpretation; price below a falling SMA supports a downward one. Multiple lengths can show short- and long-term alignment.
Confirmation checklist
Use slope, price position, and agreement across more than one lookback. A trend reading is more reliable when price structure and directional strength point the same way.
Limitations and false signals
Every observation has equal weight, so the SMA reacts slowly to new information and produces repeated crosses in sideways markets.